Intel Corporation INTC's stock has underperformed the broader Semiconductor Sector Index since March of 2017, but the company's earnings report may change the sentiment moving forward.
The Analyst
Credit Suisse's John Pitzer upgraded Intel's stock from Neutral to Outperform with a price target boosted from $42 to $55.
The Thesis
Intel's fourth quarter earnings report was "well above" Street estimates with notable strength seen in the Datacenter Group, which grew at the fastest rate since the fourth quarter of 2014, Pitzer said in a note. Specifically, DCG revenue grew 19.6 percent year-over-year, average selling price rose 8 percent and the operating margin of 53.6 percent was the second highest ever reported. Cloud growth accelerated from 30 percent to 35 percent year-over-year and the Enterprise reversed its down trend and grew 11 percent year-over-year.
Intel's first quarter revenue and earnings per share guidance did come in ahead of estimates, but gross margin and operating margin was guided lower by 225 basis points and 125 basis points year-over-year, respectively, the analyst said. This may be a conservative outlook, especially operating margin as "even lower gross margin adjacencies should have accretive incremental operating margins."
The company's growth opportunity in the data center business remains "significantly" underappreciated and could support the stock's growth -- even if the company doesn't see success in areas like artificial intelligence and deep learning.
Price Action
Shares of Intel hit a new multi-year high of $48.65 Friday morning and were up more than 7 percent.
Chip Stocks Q4 Earnings: Intel Sets The Tone For AMD, Nvidia
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